Investors await plot twist in GM comeback story

By Ben Klayman

DETROIT (Reuters) - With so many automotive industry companies posting stronger-than-expected earnings, investors are wondering what is the next chapter in General Motors Co's <GM.N> comeback story.

The No. 1 U.S. automaker is expected to more than double its first-quarter profit when it reports results on Thursday morning. Analysts polled by Thomson Reuters I/B/E/S expect operating earnings of almost $1.71 billion, or 91 cents a share, on sales of $35.59 billion.

In last year's first quarter, GM earned $742 million before one-time items.

GM is expected to benefit from the recovery in the U.S. auto market as well as its strength in Asia, echoing the strong profit rival U.S. automaker Ford Motor Co <F.N> and several suppliers have reported in recent weeks.

Other than how GM chooses to fund its pension plans, investors are less focused on the automaker's growing cash pile. They want it to fund global operations as it works to roll out vehicles that appeal to buyers in a world of rising gasoline prices.

After much hoopla surrounding the return of GM shares to the Big Board last November, the stock has lately stalled around its IPO price of $33. GM shares closed Wednesday at $33.04, up 5 cents on the day.

"This company is a few quarters out of bankruptcy. I don't think it's time to rush to get to the optimal capital structure," said Grant Taber, a portfolio manager at Westwood Management, which owns GM shares. "They need to concentrate on operations right now."

Since emerging from bankruptcy in 2009, GM has emphasized its commitment to paying down debt and pension shortfalls in order to build what former Chief Financial Officer Chris Liddell called a "fortress balance sheet" that would protect the automaker during the next downturn.

GM, whose IPO last year raised $23.1 billion, had about $30 billion in cash at the end of 2010 before selling its stakes in supplier Delphi and auto lender Ally Financial in March to raise another $1.9 billion combined.

GM's top executives, Chief Executive Daniel Akerson and current CFO Dan Ammann, have made clear over the past month that moves like a common-stock dividend, share buybacks and major acquisitions are not near-term priorities.

"The taxpayers of America still own about 27 percent of the company on a fully diluted basis and we want to return the good favor and give that money back to the taxpayers before we get too ambitious in terms of acquisitions or dividends," Akerson told Reuters last week.

Nevertheless, J.P. Morgan analyst Himanshu Patel recently said in a research note that he saw GM returning cash -- likely more than $20 billion -- to shareholders starting as early as 2013.


A focus on the balance sheet is fine with GM shareholders for now as they are more interested in knowing when the U.S. Treasury will divest its 32 percent stake of common shares in the automaker.

"Once this uncertainty over this overhang is being resolved, it has more upside," said Josef Schuster, founder of iPox Schuster, a fund that specializes in investing in newly public companies, including GM.

To keep from taking a loss on its $52 billion bailout of GM, the U.S. government would have to sell that stake at about $53 a share. Last month, sources said the Treasury could sell a significant portion of its GM shares by fall.

Many investors expect the government will be out of GM completely well before the 2012 general election so it will not be an issue for President Barack Obama.

Meanwhile, investors want to hear more about what products and markets GM is funding, along the lines of Wednesday's move to invest $131 million at a Kentucky plant for the next Chevrolet Corvette sports car.

Investors said another top use for the cash is working toward fully funding its U.S. pensions. At the end of last year, that shortfall was $11.5 billion, and GM in January put another $2 billion in stock into the funds.

Akerson said in February that GM would take "meaningful steps" this year toward fully funding those pensions.

Meanwhile, investors expect GM to reiterate that the parts shortages caused by the March 11 earthquake and tsunami in Japan have not had a material effect on earnings.

In fact, due to the struggles of Toyota Motor Corp <7203.T> and other Japanese automakers after the Japan crisis, GM stands to gain 1.1 percentage points in market share and boost 2011 profits before interest and taxes by $1 billion, UBS analyst Colin Langan said in a research note.

(Reporting by Ben Klayman in Detroit, editing by Matthew Lewis)